Launching Coverage Of IHS Markit With A $68 Price Estimate

June 6th, 2019 by Trefis Team
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IHS Markit

Trefis is launching coverage of IHS Markit  (NASDAQ:INFO), a leading provider of information, research, analytics, and technology, with a price estimate of about $68 per share. The key factors driving our price estimate for the company include its largely subscription-based model (84% of revenue was recurring in FY’18), the high switching costs for its customers (the bulk of its offerings are unique and core to its customer’s business operations), and the company’s rising margins. Below, we break-down the outlook for the company’s four business segments and the Trefis valuation for the company based on projected FY’20 results.

View our interactive dashboard analysis on What’s Driving Our $68 Price Estimate For IHS Markit? You can modify our key forecasts to arrive at your own price estimate for the company. You can also view our full discounted cash flow model for the company here.

Financial Services Is The Biggest Driver Of Revenues

  • This segment provides data, software, and services targeted at financial services companies and it accounted for about 35% of the company’s total revenue in 2018.
  • Revenues grew to about $1.2 billion in FY’17, driven by the merger with Markit, and expanded to about $1.4 billion in FY’18, driven by the company’s information product offerings and the acquisition of Ipreo.
  • We expect revenues to grow to about $1.7 billion by 2020, driven by the index business, Ipreo, and growing compliance requirements in the financial services industry.
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Transportation Likely To Continue Robust Growth

  • The transportation segment is the company’s second largest and fastest growing business, accounting for about 29% of revenues in 2018.
  • It primarily provides data and services catering to a wide-range of stakeholders in the automotive industry, ranging from manufacturers to dealers to used car buyers.
  • Revenues grew from about $0.9 billion in FY’16 to about $1.2 billion in FY’18.
  • We expect sales to grow to about $1.5 billion by 2020, driven by demand for used car reporting services such as CARFAX and the increasing emission and fuel economy norms across the industry, which could drive up demand for offerings such as Vehicle Performance & Compliance (VPaC) Monitor.

Energy Business Could See Some Near-Term Improvement

  • The energy business accounts for about 22% of total revenues.
  • The business has been underperforming over the last three years, due to CapEx cutbacks by major players, with revenues coming in at levels of around $850 million between 2016 to 2018.
  • However, we expect the metric to grow to about $930 million by FY’20, driven by higher capital budgets and potentially higher commodity prices.

Product Design & Other Business

  • The segment includes the company’s Product Design offerings, TMT and the Economics and Country Risk (ECR) offerings.
  • Revenues grew modestly between FY’16 and FY’18, to about $550 million partly driven by product design and the ECR offerings.
  • We expect revenues to grow to about $580 million by FY’20.

Estimating IHS Markit’s Fair Value

  • We expect the company’s adjusted margins to stand at about 24% by 2020 and we expect them to grow in the long-term driven by better-fixed cost absorption and a more favorable revenue mix.

  • We Are Valuing The Company At About 24x Projected FY’20 EPS

 

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